Ethical Procurement and Supply Flashcards

Comprehensive set of 80 practice flashcards covering all key concepts, definitions, and theories from the CIPS L3M2 Ethical Procurement and Supply study guide.

What is the definition of value in procurement?

Value is the extent to which a product or service supplied to a customer meets their requirements, assessed by how much the customer is willing to pay.

What is the key difference between fixed costs and variable costs?

Fixed costs remain constant in the short term regardless of production output, whereas variable costs change directly with the output of the organisation.

What are direct costs in procurement?

Direct costs are expenses directly attributed to the production of a specific good or service, such as bricks, cement, and direct labor.

What are indirect costs?

Indirect costs are expenses necessary for operations but not directly associated with a specific job or contract, such as office rent, support staff salaries, and insurance.

What is the Total Cost Approach in procurement?

An approach that considers all costs associated with acquiring an item beyond just the purchase price, including freight, maintenance, inventory, disposal, and warranty.

What are the Five Rights of Procurement?

Obtaining products or services in the right quantity, of the right quality, at the right time, to the right place, and at the right price.

What is the concept of lifetime costing?

The total anticipated costs of designing, procuring, acquiring, operating, maintaining, insuring, and disposing of a fixed asset throughout its lifetime.

What are the 'Three Es' used to measure value for money?

Efficiency, Economies (or Economy), and Effectiveness.

What five factors contribute to organisational success?

People, Purpose, Procedures, Customers, and Resources.

What is Kaizen?

A Japanese concept meaning 'change for better' that involves continuous, long-term incremental improvements in organisational processes.

What are the five Japanese terms and English steps in the 5S Framework?

Seiri (Sort), Seiton (Set in order), Seiso (Shine), Seiketsu (Standardise), and Shitsuke (Sustain).

What are the seven types of waste identified in Lean thinking?

Motion, Inventory, Over-production, Waiting, Defects, Over-processing, and Transportation.

How do efficiency and effectiveness differ?

Efficiency is doing the task right (performing competently with minimal waste and time), whereas effectiveness is doing the right task (reaching organisational objectives).

What are economies of scale?

Cost advantages achieved when production volume increases, leading to a lower unit cost because fixed costs are spread over more units.

What is Value Engineering (VE)?

A systematic approach during the design stage of a product life cycle to achieve the lowest cost without sacrificing functionality or quality.

How does Value Analysis (VA) differ from Value Engineering (VE)?

Value Engineering is applied during the initial design phase of a product, whereas Value Analysis is applied to existing, established products.

What is David Garvin's 'Transcendental' approach to defining quality?

An approach where quality cannot be logically or quantifiably defined, but people recognise it when they see or experience it.

What are David Garvin's five approaches to defining quality?

Transcendental, Product based, User based, Manufacturing based, and Value based.

What is the ISO 9001 standard?

The internationally recognized global standard for Quality Management Systems (QMS), focusing on continuous improvement and customer requirements.

What is the main difference between Quality Assurance (QA) and Quality Control (QC)?

Quality Assurance focuses on preventing defects through planned process checks, whereas Quality Control focuses on identifying and correcting defects in finished items.

What are Philip B. Crosby's five absolutes of quality?

1) Quality means conformance; 2) No quality problems; 3) Doing it right first time is cheaper; 4) Measurement is cost of quality; 5) Zero defects is the only standard.

What equation expresses Total Lead Time?

$$\text{Total Lead Time} = \text{Internal Lead Time} + \text{External Lead Time}$$

What is internal lead time?

The time taken from when a internal requisition is raised until the purchase order is officially placed with a supplier.

What is external lead time?

The time elapsed from placing a purchase order with a supplier until the goods are physically received at the buyer's organisation.

What is expediting in procurement?

The process of tracking and monitoring an order's progress from supplier receipt to final delivery to ensure agreed timescales are met.

What is the purpose of a Gantt chart in procurement?

To visually schedule and track project activities, sequence, timelines, and milestones to monitor progress and identify schedule delays.

What is a blanket order?

An order placed with a supplier that sets a fixed price for an agreed period, allowing the buyer to call off quantities as needed over time.

What is a Minimum Order Quantity (MOQ)?

The smallest amount of a product that a supplier is willing to sell in a single order.

How does a Kanban inventory system work?

It uses visual cards or container signals to trigger replenishment of stock between operations or from suppliers, preventing overproduction.

What is the Just in Time (JIT) inventory method?

A Lean strategy where materials arrive at the production area precisely as needed, minimizing inventory storage costs.

What is the difference between Total Cost of Acquisition (TCA) and Total Cost of Ownership (TCO)?

TCA is the total expense incurred to obtain a product/service, while TCO includes TCA plus all ongoing operating, maintenance, and disposal costs.

What are the four supplier relationship categories in the Kraljic Matrix?

Leverage suppliers, Strategic suppliers, Routine suppliers, and Bottleneck suppliers.

In the Kraljic Matrix, what characterizes a Bottleneck supplier?

Low financial risk/impact, but high supply risk due to limited supplier options or market monopolies.

What is a performance (outcome-focused) specification?

A specification outlining what the product or service must achieve in terms of outputs and function, allowing supplier innovation.

What is a conformance specification?

A specification detailing exact design, recipe, or chemical standards that a requirement must match precisely, leaving no room for supplier variance.

What two dimensions form Barnes's Outsource Matrix?

Strategic importance (contribution to competitive advantage) and contribution to operational performance.

According to Barnes's Outsource Matrix, which processes should be retained in-house?

Processes with high strategic importance and high contribution to operational performance (core competencies).

What are the four functions of a specification described by Lysons and Farrington?

1) Indicates fitness for purpose; 2) Details supplied product/service info; 3) Communicates user needs clearly; 4) Serves as dispute evidence.

What does the BRC global standard regulate?

Food safety, packaging, storage, distribution, quality, legality, and ethical behaviors in the food industry.

What does the acronym SMART stand for when defining KPIs?

Specific, Measurable, Achievable, Relevant, and Time-bound.

What are Porter's Five Forces used for?

To analyze competition and market dynamics: Rivalry among existing competitors, Supplier power, Buyer power, Threat of substitutes, and Threat of new entrants.

What are Ray Carter's 10 Cs of supplier evaluation?

Competency, Capacity, Commitment, Control, Cash, Cost, Consistency, Culture, Clean, and Communications.

What is open tendering?

A single-stage tendering process where any supplier can submit a response to a published tender document.

What is restricted tendering?

A two-stage tendering process using a pre-qualification questionnaire (PQQ) to shortlist suppliers before inviting formal tender bids.

What is an invitation to treat?

An initial document (such as an RFQ or ITT) inviting potential suppliers to submit a quote or bid, which does not constitute a legal offer.

What is a two-stage tendering process?

A tendering method for complex projects where stage one agrees technical solutions/specifications, and stage two solicits costed bids on finalized specifications.

How does a reverse auction operate?

Suppliers bid against each other on an electronic platform by progressively lowering their price bids until no supplier goes lower.

What three elements are legally required to form a valid simple contract?

Intention to create legal relations, Consideration (exchange of value), and Capacity of the parties.

What are French and Raven's Five Types of Power?

Referent power, Legitimate power, Expert power, Coercive power, and Reward power.

What is coercive power, and why should procurement avoid it?

Power exercised by forcing or threatening someone to act; it is unethical and damages supplier trust and relationships.

What is contract mobilization?

The transition process in which an awarded contract shifts from agreement to going live operationally.

What primary duty does the CIPS Code of Conduct place on procurement professionals regarding integrity?

To maintain the highest standard of integrity in all business relationships and reject any business practice deemed improper.

What are the five core sections of the CIPS Code of Conduct?

1) Enhance/protect standing; 2) Maintain integrity; 3) Eradicate unethical practices; 4) Enhance proficiency/stature; 5) Ensure law compliance.

Under the CIPS Code of Conduct, what is the rule regarding supplier gifts?

Members must not accept inducements or gifts, except declared gifts of nominal value sanctioned by their employer.

What is a conflict of interest (COI)?

A situation where an individual has competing personal, financial, or professional interests that could compromise their impartiality in decision making.

What five areas are typically included in an organizational Code of Ethics?

Values, Principles, Personal responsibility, Compliance, and Reporting.

What is a whistle-blower?

A person who discloses internal activity or information they believe to be illegal, unethical, or against organizational policy.

What are the four quadrants of Mendelow's Stakeholder Matrix?

Keep satisfied (High power, Low interest), Manage closely (High power, High interest), Minimum effort (Low power, Low interest), and Keep informed (Low power, High interest).

According to Mendelow's Stakeholder Matrix, how should stakeholders with high power and high interest be managed?

They are key players who should be managed closely, being actively involved in decision making and fully informed.

What is modern-day slavery in procurement?

Unethical supply chain practices including forced labor, human trafficking, and severe worker exploitation under unsafe conditions.

What are the five main areas where conflicts of interest occur?

Financial, Materialistic, Prejudicial, Personal, and Professional.

What is the difference between an actual and a perceived conflict of interest?

An actual conflict occurs when private interest directly sways decisions; a perceived conflict occurs when private interests appear to others to potentially affect impartiality.

What are the 4Ds used to address potential conflicts of interest?

Disclose, Distance, Delegate, and Disassociate.

What is the first step when applying the 4Ds model to a conflict of interest?

Disclose: immediately declaring the potential conflict of interest to someone in authority within the organisation.

What is 'moonlighting'?

Paid work undertaken from a second job without the consent or knowledge of one's primary employer.

What is a commercial rebate?

An amount paid back to the buying organisation on top of agreed discounts after reaching specified spend thresholds.

According to the Trust Matrix, what two factors produce high trust in customer-supplier relationships?

High belief in capabilities/competence and high belief that the supplier/individual genuinely cares.

What does the KISS principle stand for in survey design?

'Keep It Simple, Stupid'—a theory stating that systems and questionnaires work best if they are uncomplicated.

What is a Personal Improvement Plan (PIP)?

A targeted action plan designed to address specific employee performance issues through structured goals, training, and reviews.

How many stages make up a Personal Improvement Plan (PIP)?

Six stages: 1) Document issues; 2) Develop action plan; 3) Review PIP; 4) Meet individual; 5) Review progress; 6) Conclusion.

What is cycle time?

The total amount of time taken to convert raw materials into one finished unit of product.

How does cycle time differ from total lead time?

Cycle time measures unit conversion speed, whereas total lead time spans the entire process from order placement to final delivery.

What is an off-the-shelf item?

A standard product that is readily available from existing stock without requiring custom manufacturing.

What is a bespoke product?

An item made or provided specifically for a specific end user or custom requirement.

What is a Letter of Credit (LC)?

A document used between a buyer's and seller's bank guaranteeing payment upon presentation of agreed shipping documents.

What is a CAPEX budget?

A Capital Expenditure budget set aside for long-term assets such as machinery, land, and property.

What is an OPEX budget?

An Operational Expenditure budget allocated for day-to-day running costs like office stationery, raw materials, and utilities.

What is the formula for calculating budget variance?

$$\text{Variance} = \text{Actual spend} - \text{Budget}$$

What does a positive budget variance figure indicate?

It indicates that the budget has been exceeded (an overspend).

What is the difference between a temporary variance and a permanent variance?

A temporary variance self-corrects over time (e.g., early payments), whereas a permanent variance represents an uncorrectable departure from budget (e.g., unplanned asset cost).